Citigroup (NYSE:C) is slowly ascending once again, which is interesting given Citigroup was recently mentioned, along with Bank of America (NYSE:BAC) and Deutsche Bank (NYSE:DB), as being among a group of financial institutions that shed debt just before quarter’s end to disguise levels of risk. The companies have been lowering their net borrowing in the repo market by an average of 41% at the end of each of the last 10 quarters, according to Fed Reserve data. This points out the systemic issues that have yet to be fully addressed in the Banking industry; as extensive use of repos was what allowed Lehman to improve its risk appearance quarter after quarter before that firm was forced into bankruptcy in September of 2008.
An upgrade from Oppenheimer in which they raised their outlook on Citigroup to outperform may also have contributed to the sudden momentum in Citigroup shares. Oppenheimer sees Citigroup shares trading below book value of $4.09 or so. Reducing short term borrowing ahead of the end of a quarter does not appear to be illegal at present, but the Securities and Exchange Commission is reviewing and considering new rules that would require increased disclosure of such practices, according to a recent report in the Wall Street Journal. The repurchase market, more commonly known as the repo market; where banks put up securities as collateral to get quick access to funds, is one of the riskiest ways to borrowing because it is so short term. If sudden panic were created for some reason and markets seized up, banks that rely too heavily on this particular market transaction could suddenly find themselves in a funding crisis, such as what happened with Bear Stearns and Lehman Brothers during the 2008 financial market collapse. Citigroup stock may also be rising from a report in the Financial Times that said that the Qatar Investment Authority is strongly considering buying some of the U.S. Treasury’s 27% stake in Citigroup.
Some more good news from this week has also come to light regarding Citigroup. The Treasury Department said Wednesday it raised $6.2 billion from the sale of 1.5 billion shares of Citigroup stock it received as part of the government’s rescue of the bank. The government sold the shares at a profit as it seeks to recoup the costs of the $700 billion financial bailout. The stock sold for an average price per share of around $4.33, the Treasury said, which would represent a profit from the $3.25 price Treasury paid to obtain the shares of roughly $1.08 or 33%. The sales took place over the past month and represented 19.5 percent of the government’s holdings of Citigroup common stock. The treasury has also triggered a second round of shares to sell through its agent for the sale Morgan Stanley. The second round will be 1.5 billion shares as well. The government says it will not sell shares during the blackout period set by Citigroup expected to begin on July 1 in advance of its second quarter earnings release. The government hopes to sell all their shares of Citigroup this year. Citigroup shares closed Thursday at $4.02 and have traded between $2.55 and $5.43 over the past 52 weeks. Citigroup was one of the hardest hit banks during the financial crisis and received $45 billion in bailout money. $25 billion was converted to a government ownership stake in Citigroup last summer. The bank repaid the other $20 billion in December of 2009.
All things considered, Citigroup CEO Vikram Pandit continues a masterful job of restructuring the balance sheet for Citigroup. He has also pinpointed corporate focus on a return to Citigroup’s bread and butter business, the banking business. As he continues to deleverage and shed assets that have become too risky, economies of scale should help this company return to its global powerhouse status relatively soon considering the mess that was created under previous leadership. At one time, the Weil merger model fit, but those days are long gone. A more core banking, business centric Citigroup will emerge once again as a global leader.
Disclosure: currently not holding a position in Citigroup (C)
This is great news. Also,let us not forget that the big boys are buying Citigroup stock as well as adding to their positions.
We anticipate a merger soon with Citigroup and a dividend increase after the government sells their shares making a nice profit we might add.
ESL,
Long term investors will do well with this equity, especially if they buy on the dips along the way. At this point, anything under $4 dollars is a solid purchase, keep in mind the Treasury sold their shares at an AVG of $4.33 for a 33% profit based on their initial cost of $3.25 a share. Traders need to be aware of the Treasury tranches as they are sold off, because even with the high volume of shares that trade in this equity daily, it will have an impact. Merger talk is still very premature imo, and there are still far too many shares out there.
Both short and long term investors will do well with C. Anything under 4 is ridiculous. I concur ESL, a merger will happen; the number of outstanding shares has nothing to do with this ocurring or not. As to timing the Treasury sales, good luck. Anything under $4 is a gift for anyone except the very myopic,
A merger is what started Citigroups downfall…so I would not be so agreeable to one happening any time soon. Also..to state that 24 BILLION shares is not relevant is a bit short sighted.
The merger will be with a bank that offers investment vehicles since Citigroup sold off that entity.
As far as the outstanding shares all you need is for Citigroup to buyback the shares.
This will reduce the float.
I believe it may be Morgan Stanley or Bank of America, but more bias towards MS because of the joint ventures they made in the past with Citigroup.
All this will occur after the government sells their shares including the dividend increase,,no need to say anyting now because Citigroup will announcea stock buyback in the future and they do not want the stock price to go up now.